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REA welcomes strong Government financial commitment to renewables industry

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Headlines grossly misrepresent cost to consumers of renewable energy.

DECC has today announced that the decarbonisation target in the Energy Bill will be deferred to after the next election and that the Government’s green energy budget (or ‘Levy Control Framework’ (LCF)) will be expanded [1]. The resource commitment under the LCF will help to re-establish investor confidence in renewable power, with analysis published yesterday showing investment levels have halved since 2009 [2]. With the UK set to be up to 80% dependent on imported gas by 2020 the once-in-a-generation investment phase is essential for safeguarding national energy security.

REA Chief Executive Gaynor Hartnell, who is currently in Athens participating in the EU-wide ‘Keep on track!’ project [3], said:

“The commitment of the necessary budget for the renewable power sector to meet its share of the2020 target, is very welcome news. This should help to draw a line under the recent politicking, which has been so damaging to investor confidence.

“Today’s announcements finally give a suggestion that the Government is getting behind the renewables agenda, which promises 400,000 green jobs across power, heat and transport by 2020, along with a much more secure energy future [4].”

The Levy Control Framework, which controls expenditure on renewable energy that can be levied through energy bills, is to be tripled to £7.6 billion in 2020 (real 2012 prices), which now also includes support for nuclear and CCS. This means that the renewable power sector can be confident it has the financial backing to enable it play a major role in securing the new investment the UK urgently needs as ageing coal and fossil plant are retired.

Impact on consumer bills 'wildly over-stated'

REA Head of External Affairs Leonie Greene said:

“We are concerned that the implications of this decision for household bills are being wildly over-stated in parts of the media. Households will pay £22 this year to ensure around 10% of their electricity comes from renewables [5]. With costs reducing in most forms of renewable power - some dramatically - it should be abundantly clear that securing 30% of our electricity from renewable power in 2020 will be much cheaper than many reports suggest.

“Furthermore there is more to household prosperity than energy bills. The renewable energy revolution means that rather than spending billions importing fossil fuels from abroad [6], households will be investing directly in the development of UK jobs and enterprise with all the benefits that brings to the UK Treasury and local money supply. We anticipate up to 400,000 diverse jobs in the UK by 2020, together with excellent export opportunities.”

The REA is keen to correct many of the misrepresentations of the costs to consumers of renewable energy policies:

Ø  DECC analysis shows that, taking into account energy efficiency measures, the net impact of its climate and energy policies on consumer bills will actually be a net decrease of 7% (£94) in 2020 [7]. Recent analysis by the Energy Saving Trust shows households are wasting up to £86 per annum by leaving electrical items on standby [8]. Analysis by REA based on Ofgem/DECC data shows support schemes for renewables over a similar period have contributed around £4 to energy bill price increases [9]. That equates to 2% of total bill increases over the past two years.

 

Ø  There is no evidence that the cost of fossil fuels is set to decrease – indeed fossil fuel price spikes have been the main contributor to energy bill increases in recent years [10], and DECC-commissioned analysis shows that decarbonising our energy supply will help insulate the UK economy against fossil fuel price shocks [11].

 

Ø  The Levy Control Framework will now support all low carbon energy, including CCS and nuclear, as well as renewables.

 

Ø  Support available to renewable generators under the Renewables Obligation, which is to remain open until 2017, and the Feed-in Tariff, is already being reduced in line with cost reductions in the technology. The costs of several renewables, such as onshore wind and solar PV, are falling fast [12]. Mainstream analysis shows solar power is set to be competitive with fossil fuel prices before the end of this decade.

 

Ø  The costs of renewable energy are rarely compared with their benefits. REA’s own analysis shows that the sector, which currently supports 110,000 jobs and has a turnover of £12.5 billion, could support 400,000 jobs by 2020. The benefits of domestic energy security also need to be included in cost benefit analyses of renewable energy.

 

Concern over details of the Energy Bill

While the commitment of the necessary budget is welcome the sector urgently requires policy clarity in order to be able to invest. Today's announcement confirms that Government will be the counterparty to the new Contract-for-Difference regime - a key measure called for by the REA and warmly welcomed today. 

However, the REA is particularly concerned about generators’ ability to sell their electricity under the new Electricity Market Reform (EMR) regime. In order to be financially viable under the new ‘Contracts for Difference’, generators must achieve the ‘reference price’ for their power sales. Evidence suggests this is unlikely to be achieved in the UK's illiquid power market. Unless the route to market is clear and assured, it will be difficult to see how projects can proceed and access the funds the Government has made available today.

Gaynor Hartnell said:

“It is essential that there are enabling powers in the Energy Bill for a solution which guarantees renewables generators can sell their power at the reference price and that the details are worked up in order that a mechanism can be implemented if, as we anticipate, it proves necessary.

“We also want to see an increase to the maximum size threshold for small scale feed in tariffs. It is also important that smaller investors have an appropriate and accessible support mechanism.”

A group of independent generators have worked up a proposal which guarantees that generators will be able to achieve the full strike price for their power, and this will be demonstrated to REA members shortly.

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